Mr.Porter sells 10 bottles of champagne per week at $50 per bottle.He can sell 11 bottles per week if he lowers the price to $45 per bottle.The quantity and the price effects on total revenue would be,respectively,an increase of _____ and a decrease of _____.
A)$450;$500
B)$495;$550
C)$45;$5
D)$45;$50

Question

Quizplus · Accepted Answer

To find out the quantity effect on total revenue, we need to calculate the change in quantity sold multiplied by the original price. The quantity effect is:

(11-10) x $50 = $50

This means that by decreasing the price and selling one more bottle, the total revenue increases by $50.

To find out the price effect on total revenue, we need to calculate the change in revenue due to the price decrease. The price effect is:

10 x ($45-$50) = -$50

This means that by decreasing the price, the total revenue decreases by $50.

Therefore, the total effects are an increase of $50 in quantity and a decrease of $50 in price. The net effect is zero.

However, the question asks for the individual effects, so the correct answer is D) $45 increase in quantity and $50 decrease in price.

MrPorter Sells 10 Bottles of Champagne Per Week at $50